On November 29, 2017, the Government of Alberta introduced Bill 31: A Better Deal for Consumers and Businesses Act (“Bill 31”) setting out various changes to the Fair Trading Act (including changing the name of the legislation to the Consumer Protection Act) (the “Act”). Bill 31 introduced various new requirements applicable to “high-cost credit businesses”, including a requirement to obtain a “high-cost credit licence” (a “Licence”). These provisions will come into effect January 1, 2019. The licensing requirement applies both to businesses operating from physical locations and those operating online. However, the following types of business organizations are exempt from licensing requirements: (a) a public utility; (b) a life insurance company for a loan under a life insurance policy or the security of the cash surrender value of the policy; (c) a financial institution or other person regarding a student loan granted under legislation governing student loans; (d) a municipality or Métis settlement with respect to payment of taxes under applicable legislation; and (e) a financial institution regulated under the Bank Act (Canada), a credit union, or ATB Financial (the Alberta provincial government-owned bank).
On June 28, 2018, the Government enacted the High-Cost Credit Regulation (the “Regulation”), which will come into effect January 1, 2019. The Alberta government has also now issued the relevant tip sheet, compliance standards and licensing guidance (collectively, the “Guidance”) in respect of the Regulation, including a step-by-step procedure for licensing application.
A “high-cost credit business” is defined under the Act as “the activity of offering, arranging for or entering into a high-cost credit agreement”. A “high-cost credit agreement” is defined as “a credit agreement that provides for a rate of 32% or more as calculated in accordance with the regulations, and includes a lease but does not include a payday loan.”
The Regulation provides that, for open high-cost credit (such as lines of credit, credit cards, retail cards and revolving credit accounts), such rate is to be calculated in accordance with the industry standard for calculating annual interest rate. For fixed high-cost credit (such as installment loans (e.g. auto loans, personal loans, consolidation loans), secured loans (e.g. title loans) and pawn loans) and leases, such rate is to be calculated in accordance with the Cost of Credit Disclosure Regulation.
Pursuant to the Regulation, the term of the Licence is one year and the fee per year is $1,000 (with an additional $500/ year renewal fee), with an additional fee of $500 per year for each additional location. In addition, an application for licence is required to be accompanied by a security deposit of $10,000 made in either of two ways (a) a General Surety Bond, or (b) Cash Security Agreement accompanied by an irrevocable letter of credit, or cash, term deposit or other similar instrument.
In addition to payment of licensing fee and the security deposit, a licensee is required to comply with various notification requirements with respect to changes in business ownership and locations. High-cost credit businesses will also be required to disclose to the Director the total value and the number of high-cost credit agreements entered into, and retain operational documents and records. In addition, the Regulation prohibits certain business practices and requires compliance with certain disclosure requirements (both content and form) and reporting requirements. Finally, a high-cost credit business is subject to inspection or investigation under the Act.
By Ana Badour and Charles Eluromma
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